Black Sea Project Gets Build Permit

February 4, 2019

Drilling rig at Iulia-1 well (Photo: Black Sea Oil & Gas)

Romanian-based Black Sea Oil & Gas received a construction permit from the country's energy ministry on Friday for an offshore gas project, but it said new taxes could make it hard to go ahead with the development.

The company, controlled by private equity firm Carlyle Group LP, discovered two wells holding an estimated 10 billion cubic meters of gas in 2008 some 120 kilometers offshore in the Black Sea.

It hoped to start production by 2020, pending a final investment decision, becoming the first in a line of companies to tap the European Union state's vast offshore resources.

But Romania's Social Democrat government approved a slew of taxes via emergency decree in December without an impact assessment or public debate, including a 2-percent tax on turnover for energy firms and a cap on gas prices.

That came on top of other new laws for offshore drilling stipulating that Romanian companies would need to sell at least half their yearly gas output in the country.

"Our ability to obtain a final investment decision is adversely impacted."

Unlike other countries in the region, Romania is largely independent in terms of its energy needs. It imports less than 10 percent of its gas needs from Russia, with the rest produced locally, mainly by state producer Romgaz and OMV Petrom, controlled by Austria's OMV. "(The price cap) removes investor confidence that being a Romanian producer will not result in being economically disadvantaged versus investing in other countries," Beacom added.

The sales restrictions also made it difficult for the company to finance the offshore project, he said.

The new taxes and price caps have received widespread criticism from businesses, but the government has said it has no plans to withdraw or amend the emergency decree.

In October, after the offshore law was approved, Petrom postponed an investment decision on its Black Sea Neptun block, a joint venture with U.S. major ExxonMobil.

Last year, the National Agency for Mineral Resources (ANRM) said the country could almost double its natural gas production to about 20 billion cubic meters a year by 2025, helped by new Black Sea offshore discoveries.